Incident: The company announced its 2024 mid-year report. In 2024, the company achieved operating income of 2.143 billion yuan, -12.7% YoY, net profit to mother 0.178 billion yuan, +8.1% YoY, net profit of 0.167 billion yuan. Looking at the single quarter, 2024Q2, the company's revenue was 1.058 billion yuan, the year-on-year net profit was 0.103 billion yuan, the year-on-year net profit was +4.7%, after deducting non-return net profit of 0.097 billion yuan, or -11.4% year-on-year.

Improve operational efficiency+increase the proportion of high value-added products, and improve the company's profitability. 24H1's gross sales margin was 21.12%, +3.19pct year on year, net sales margin 8.27%, +1.52pct year on year.

The company actively adjusts the product structure and market strategy, actively increases the sales share of high-value-added lighting products, and actively reduces the market business size in high-risk regions. The civilian lighting business operates efficiently on a large-scale basis, maintaining iterative management and the ultimate cost performance ratio; the commercial lighting sector focuses on customer needs for “customization, intelligence and specialization” to achieve rich categories and product upgrades, increase the share of segmented product segments, and continuously explore new customers and channels.

The lighting industry is becoming increasingly competitive, and the trend of domestic substitution in the automotive business is increasing. In the first half of 2024, the total export volume of China's lighting industry was about 27.5 billion US dollars, an increase of 2.2% over the previous year. However, the export market stock competition was fierce, and lighting exports from ASEAN, India and other regions increased the overall supply in the global market. China's automobile production and sales reached 13.891 million vehicles and 14.047 million units respectively, up 4.9% and 6.1% year-on-year respectively, continuing the growth trend in recent years. The NEV market share continued to rise rapidly, reaching 35.2% in the first half of the year. Currently, the automotive controller and automotive lighting sector is still dominated by international auto parts companies, but with the booming development of domestic NEVs, the automotive supply chain is being reshaped, and the trend of domestic substitution is increasing.

Investment advice: We expect the company to achieve a net profit of 4.0/ 4.65/ 0.529 billion yuan in 2024-2026, corresponding to PE of 12/10/9 times, respectively, to maintain an “increase in holdings” rating.

Risk warning: Downstream demand has fallen short of expectations, rising raw materials and shipping costs have exceeded expectations, etc.